Greed, fear and plain old bad decisions can derail even the best investment plan. This holds particularly true when a personal injury client receives a large lump sum settlement and decides to make his or her own financial decisions with little or no investing experience or fails to heed sound financial advice. The results are predictably bad–settlement funds disappear long before expected and instead of a secure financial future, the injured party is left with nothing.
Bad Choices. DALBAR’s Quantitative Analysis of Investor Behavior (QAIB) report has been tracking investor conduct since 1994. John Frownfelter recently wrote an article on the report’s findings–investors pop in and out of mutual funds, using emotion rather than sound strategies, so their investments consistently underperform the general market.
Depleting A Settlement. What does this tell us about what could happen to funds secured from a settlement? Though statistics are hard to come by, an insurance report from The Rutter Group shows “that 25 to 30% of all accident victims completely dissipate their judgments or settlements within two months of recovery and 90% spend it all within five years.”
A Balanced Plan. That’s why I always recommend a balanced structured settlement approach. Clients receive enough settlement money in cash to cover immediate bills and medical necessities. They can set aside rainy-day money or money for emergencies with the help of a financial planner or place the funds in conservative no-load mutual funds. The balance of their settlement can then go into structured, tax-free annuities so they have enough monthly income for the rest of their lives even if investments hit a rocky period or fail altogether.
I recently wrote an article on how to financially balance a structured settlement. It appeared in the July issue of Plaintiff magazine.
Feel free to call anytime with questions.
– Pat Farber
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